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Fear of floating or monetary policy as usual? A structural analysis of Mexico's monetary policy

Gabriela Best ()

The North American Journal of Economics and Finance, 2013, vol. 24, issue C, 45-62

Abstract: This paper uses Bayesian methods to estimate a small open economy dynamic stochastic general equilibrium (DSGE) model for the period in Mexico after the 1994 crisis. I consider a Taylor rule as the expression of the evolution of monetary policy to gauge its response to the exchange rate in the post-crisis period. The estimation results favor a consistent response of the nominal interest rate to the short-run nominal exchange rate after 1994. Although fear of floating is present, Mexico's monetary policy has taken steps toward a credible free-floating exchange rate that targets inflation.

Keywords: Small open economy models; Monetary rules; Inflation targeting; Fear of floating; Bayesian estimation (search for similar items in EconPapers)
JEL-codes: E52 E58 F31 F41 (search for similar items in EconPapers)
Date: 2013
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (11)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecofin:v:24:y:2013:i:c:p:45-62

DOI: 10.1016/j.najef.2012.05.002

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